UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
<PAGE>
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-12252
PATHE COMMUNICATION CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-2624802
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 EAST 40TH STREET
NEW YORK, NEW YORK 10016
(Address of principal executive offices) (Zip Code)
</TABLE>
(212) 545-1900
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock - $.01 par value
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that Registrant was required to file such reports) and (2) has been
subject to such filing requirements for at least the past 90 days. Yes X
No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.045 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
As of March 10, 1995, 116,746,810 shares of Registrant's common stock
were outstanding. The aggregate market value of Registrant's Common Stock
held by non-affiliates is indeterminate because the Registrant's common
stock is no longer listed on a national stock exchange and has not been
actively traded since July, 1992.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
PART I
ITEM 1. BUSINESS
Pathe Communications Corporation (the "Company" or "Pathe") is a
Delaware corporation that is conducting no business activities. It has no
operating assets or sources of operating income. Pathe's total liabilities
are in excess of $287,000,000 and the Company has a negative net worth.
The Company's predecessor-in-interest, The Cannon Group, Incorporated
("Cannon") was incorporated in New York on October 23, 1967. Subsequently,
Cannon effected a merger into the Company, which was effective under New
York law on November 25, 1985. In May 1992, the Company took additional
actions in Delaware to correct certain deficiencies under Delaware law with
respect to such merger. The Company has its principal executive offices at
10 East 40th Street,New York, New York 10016, telephone (212) 545-1900.
The Company is wholly dependent on Credit Lyonnais Bank Nederland
N.V., a Dutch banking institution ("CLBN"), for additional capital needed
to fund its on-going expenses. CLBN owns or controls the voting rights of
approximately 97% of the Company's common stock.
CLBN has provided funding for the Company since before May, 1993, when
the current management was elected. CLBN has done so in the exercise of
its absolute and sole discretion. There is no contractual obligation
requiring CLBN to continue to provide the Company with any further funding;
nor is CLBN obligated to forbear in demanding payment of the Company's
outstanding balance owing to CLBN under a demand promissory note. No
assurances can be made that CLBN will continue to advance funds to the
Company or that CLBN will continue to forbear demanding such payment.
The Company has from time to time received monies from the liquidation
of claims or the settlement of litigation, but those funds have not been
adequate to sustain the Company without the funding from CLBN.
Pathe's management does not expect that Pathe will acquire any
operating assets or sources of income, or that Pathe will engage in any
business activities, in the foreseeable future.
The Company has no employees.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
Information regarding material pending legal proceedings set forth in
Note 9 of the Notes to the Financial Statements beginning on page 13 hereof
is incorporated herein by reference. Because of the Company's financial
condition and lack of operating income, a significant adverse judgment in
one or more of the cases described therein could have a material effect on
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no public market for the Company's common stock. The Company
is unable to predict at this time whether any public market will exist in
the future. The Company does not have any present plans that would result
in the repurchase or redemption of its common stock or in the admission for
trading of such stock on any exchanges or markets.
As of March 10, 1995, there were 1,485 holders of record and
approximately 3,191,936 shares were held by stockholders other than
officers, directors, members of their immediate families and concentrated
holdings of 10% or more. The Company's stock is subject to deregistration
with the Commission if the Company has less than 300 holders of record, in
which event the Company would no longer file public reports with the
Commission.
The Company did not pay any dividends on its common stock during 1994
or 1993. The Company's subordinated debt indentures contain covenants that
limit the Company's ability to pay dividends. In light of the Company's
current financial condition and state of operations, the Company does not
anticipate any payment of dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended
December 31, 1994 have been derived from the financial statements of the
Company and notes thereto, which have been audited by independent
accountants.
<TABLE>
<CAPTION>
Selected Financial Data
(in thousands, except per share data)
Fiscal years ended
1994 1993 1992<F2> 1991 1990<F1>
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . $ - $ - $ - $ - $ -
Operating loss . . . . . . . . . (1,416) (10,644) (7,006) (13,536) (4,855)
Equity in net loss
of subsidiaries . . . . . . . . - - (125,037) (341,485) (48,622)
Extraordinary items . . . . . . . - - (319,732) - 6,590
Net loss . . . . . . . . . . . . (16,635) (26,163) (472,838) (352,935) (54,976)
Net loss per share . . . . . . . (.14) (.22) (4.05) (3.02) (.81)
Total assets . . . . . . . . . . 3,181 1,356 975 540,838 1,054,578
Debt . . . . . . . . . . . . . . 224,615 220,568 206,252 308,971 501,725
Cash dividends paid . . . . . . . - - - - -
<FN>
<F1> On November 1, 1990, the Company acquired MGM. The Company recorded reserves on certain investments and loans to
affiliates during 1990 of $66,834,000.
<F2> On May 7, 1992, CLBN foreclosed on the common stock of MGM. The Company recorded a loss of $319,732,000 as a result of
the foreclosure (See Note 3.).
<PAGE>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's Financial Statements and related notes thereto. References to
Notes are to the notes to such statements.
General. As a result of the foreclosure on May 7, 1992 (See Note 3.),
the Company has no operating assets or sources of operating income (See
"Liquidity and Capital Resources".).
Because the Company has no business operations, the following
discussion of "Operations" refers to management's administrative
activities.
RESULTS OF OPERATIONS
1994 VERSUS 1993 OPERATIONS
General. The Company reported a net loss for 1994 of $(16,635,000),
or $(.14) per common share, as compared to a net loss of $(26,163,000), or
$(.22) per common share, for 1993, in both years based on 116,746,810
weighted average common shares outstanding.
General Corporate Administration Expenses. General corporate
administration expenses decreased $9,228,000 (approximately 87%) for 1994
due primarily to reductions in legal costs associated with litigation, in
legal settlement expenses and in reserves for pending litigation.
Other Income (Expense). Net interest expense increased by $3,636,000
for 1994 due primarily to an increase in the average interest rate on bank
and other debt for 1994 (See Note 4.).
During 1994, two litigation matters involving the Company were settled
generating $4,255,000 in "legal settlements, net" for the year, of which
$2,555,000 was the receivable expected from the Kune settlement and the
balance was a reduction in the reserve for pending litigation (See Note
9.).
1993 VERSUS 1992 OPERATIONS
General. The Company reported a net loss for 1993 of $(26,163,000),
or $(.22) per common share, as compared to a net loss of $(472,838,000), or
$(4.05) per common share (a loss before extraordinary items of
$(153,106,000), or $(1.31) per common share), for 1992, in both years based
on 116,746,810 weighted average common shares outstanding.
General Corporate Administration Expenses. General corporate
administration expenses increased $3,638,000 (approximately 52%) for 1993
due to payments in settlement of various litigation matters and accruals
for legal fees and expenses related to other pending litigation matters.
Other Income (Expense). The equity in the net losses of subsidiaries
of $(125,037,000) was eliminated for 1993 following the foreclosure (See
Note 3.). Net interest expense decreased from $20,600,000 for 1992 to
$15,838,000 for 1993 due primarily to a reduction in the average debt from
CLBN (See Note 4.).
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company is currently dependent on CLBN for additional capital to
fund its cash requirements. CLBN may, in its absolute discretion, decide
whether to advance additional funds to the Company (See Note 4.).
Additionally, the Company is in default on its existing indebtedness to
Sealion (See Note 4.).
Since the foreclosure (See Note 3.), CLBN has provided the Company
with the funds necessary to meet the Company's operating expenses
(including interest and principal payments on the Company's subordinated
debt not owned by CLBN) and certain other obligations. CLBN has not
indicated any intention to fund any of the Company's future expenses,
including payments on the Company's subordinated debt. CLBN has not
indicated any intention to fund any of the Company's future expenses, no
assurances can be given that CLBN will fund any such expenses and the
Company has no other source of funding.
The Company's subordinated debt agreements contain cross acceleration
provisions which generally provide that if holders of certain other debt of
the Company accelerate the maturity of such debt, such acceleration would
be a default with respect to the subordinated debt. If such event were to
occur and certain notices are given under the various agreements and
indentures, a substantial portion of the Company's subordinated debt could
be accelerated. The Company has not received any such notices.
The Company currently does not meet the minimum net worth covenant
under its 12-7/8% and 8-7/8% debenture Indentures as its net worth has been
below $37,500,000 for more than two consecutive quarters. Upon the
occurrence of such event, such Indentures, as amended (See Note 5.),
require the Company to redeem 10 percent of the aggregate principal amount
of the debentures then outstanding (at 100 percent of the principal amount)
plus accrued interest by the last day of the following quarterly period.
Similar payments must be made semi-annually thereafter until all
outstanding debentures are redeemed, unless the net worth is above
$37,500,000 as of the last day of any subsequent quarter. The Company can
satisfy the redemption requirement through previously acquired and canceled
debentures. Due to the significant amount of such debentures previously
acquired by the Company, the Company will not be required to make any cash
redemptions for the foreseeable future.
Restriction on the Issuance of New Equity Securities. In connection
with the funding of certain stock subscription agreements entered into
concurrent with the acquisition of MGM, the Company, Melia and Comfinance
entered into an agreement which prevents the Company from selling shares of
the Company, except for shares held by certain companies controlled by
prior management, until certain bank debt of such companies (approximately
$110,000,000) has been repaid. The agreement also set a minimum price for
the sale of such shares and directed the proceeds to be used to repay this
bank debt. In May 1991, this Agreement was amended to allow the Company to
sell stock of the Company, subject to CLBN's approval of both the issuance
of the stock and of the sales price for the stock. The proceeds from any
such issuance are required to be applied to the repayment of the Company's
CLBN debt.
Commitments and Contingencies. The Company is a party to various
lawsuits (See Item 3 "Legal Proceedings" and Note 9.). A significant
adverse judgment in one or more of the cases could have a material impact
on the Company's liquidity.
<PAGE>
Impact of Interest Rates. Any significant increase in interest rates
would have a substantial adverse effect on the Company's financial
position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report . . . . . . . . . . . . 8
Financial Statements:
Balance Sheets as of December 31, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . 9
Statements of Operations for the Fiscal
Years Ended December 31, 1994, 1993
and 1992 . . . . . . . . . . . . . . . . . . . . 10
Statements of Stockholders' Equity
(Deficit) for the Fiscal Years Ended
December 31, 1994, 1993 and 1992 . . . . . . . . 11
Statements of Cash Flows for the Fiscal
Years Ended December 31, 1994, 1993
and 1992 . . . . . . . . . . . . . . . . . . . . 12
Notes to the Financial Statements . . . . . . . . . 13
Financial Statement Schedules:
All financial statement schedules are omitted since the required
information is not applicable, is not material or is otherwise included
in the financial statements and notes thereto.
Independent Auditors' Report
Pathe Communications Corporation:
We have audited the financial statements of Pathe Communications
Corporation (Parent only) ("the Company") as listed in the accompanying
index. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As discussed in Note 9 to the financial statements, the Company is a
defendant in numerous lawsuits claiming significant compensatory and
<PAGE>
punitive damages. The ultimate outcome of this litigation cannot presently
be determined. Accordingly, provision for the ultimate liability that may
result upon adjudication has not been recognized in the accompanying
financial statements.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As described in Note 1 to the
financial statements, Credit Lyonnais Bank Nederlands N.V. ("CLBN")
foreclosed on the Company's investment in Metro-Goldwyn-Mayer Inc., which
constituted all the Company's operating assets and only source of income.
In addition, all of the Company's bank indebtedness (see Note 4) is
currently in default and any acceleration of such bank debt that could
result from such defaults constitutes an event of default under the
Company's bond indentures which may accelerate the maturity of the
Company's subordinated debt at face value. The Company is currently
dependent on the day-to-day financial support and forbearance of CLBN from
which there is no commitment to continue making funds available to the
Company. All of these conditions raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
Because of the effects on the financial statements of such adjustments, if
any, as might have been required had the outcome of the uncertainties
referred to in the two preceding paragraphs been known, we are unable to,
and do not, express an opinion on the accompanying financial statements.
KPMG Peat Marwick LLP
Los Angeles, California
February 24, 1995
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
1994 1993
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 44 $ 343
Accounts and notes receivable 2,556 264
Deferred loan costs 581 749
$ 3,181 $ 1,356
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable and accrued expenses $ 10,868 $ 13,560
Accrued interest payable 51,478 34,370
Matured debt payable 14,599 -
Bank and other debt 179,206 173,412
Other liabilities 560 564
Subordinated debt 30,811 47,156
Total liabilities 287,522 269,062
Stockholders' equity (deficit):
Preferred stock, $.01 par value.
Authorized 200,000,000 shares;
none outstanding - -
Common stock, $.01 par value.
Authorized 200,000,000 shares; issued
and outstanding, 116,746,810 shares 1,167 1,167
Additional paid-in capital 906,808 906,808
Accumulated deficit (1,192,316) (1,175,681)
Total stockholders' deficit (284,341) (267,706)
$ 3,181 $ 1,356
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
these statements.
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Revenues $ - $ - $ -
Corporate administration expense 1,416 10,644 7,006
Operating loss (1,416) (10,644) (7,006)
Other income (expense):
Equity in net loss of subsidiaries - - (125,037)
Interest expense (19,474) (15,838) (20,602)
Interest and other income, net - 319 (461)
Legal settlements, net 4,255 - -
Loss before income taxes and extraordinary items (16,635) (26,163) (153,106)
Provision for income taxes - - -
Loss before extraordinary items (16,635) (26,163) (153,106)
Extraordinary items - - (319,732)
Net loss $ (16,635) $ (26,163) $(472,838)
Loss per common share:
Loss before extraordinary items $ (0.14) $ (0.22) $ (1.31)
Extraordinary items - - (2.74)
Net loss $ (0.14) $ (0.22) $ (4.05)
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
these statements.
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
Year Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Addi- Cumula-
Common Stock tional Accum- tive Trans-
Subscriptions Common Stock Paid-In ulated lation Ad-
Amount Reserve Shares Amount Capital Deficit justments Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December
31, 1991 . . . . . . . $ 570,000 $(36,000) 59,747 $ 597 $337,378 $ (676,680) $(10,357) $ 184,938
Conversion of common
stock subscriptions . . (570,000) - 57,000 570 569,430 - - -
Equity adjustment . . . - 36,000 - - - - - 36,000
Foreclosure on MGM
common stock . . . . . - - - - - - 12,153 12,153
Net change in cumula-
tive translation
adjustment . . . . . . - - - - - - (1,796) (1,796)
Net loss . . . . . . . - - - - - (472,838) - (472,838)
Balances at December
31, 1992 . . . . . . . - - 116,747 1,167 906,808 (1,149,518) - (241,543)
Net loss . . . . . . . - - - - - (26,163) - (26,163)
Balances at December
31, 1993 . . . . . . . - - 116,747 1,167 906,808 (1,175,681) - (267,706)
Net loss . . . . . . . - - - - - (16,635) - (16,635)
Balances at December
31, 1994 . . . . . . . $ - $ - 116,747 $ 1,167 $906,808 $(1,192,316) $ - $(284,341)
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
these statements.
<PAGE>
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(16,635) $(26,163) $(472,838)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of debt costs 744 718 627
Losses on equity investments - - 125,037
Loss on disposition of assets and subsidiaries - - 491
Extraordinary loss - - 319,732
Changes in operating assets and
liabilities:
Accounts receivable, other assets, deferred loan
costs and due from affiliates (2,123) (82) (3,176)
Accounts payable, accrued interest and other
liabilities 14,411 12,228 17,214
Net cash used in operating activities (3,603) (13,299) (12,913)
Cash flows from financing activities:
Borrowings under line of credit 5,794 13,598 12,893
Repayment of subordinated debt (2,490) - -
Net cash provided by financing activities 3,304 13,598 12,893
Net increase (decrease) in cash and cash equivalents (299) 299 (20)
Cash and cash equivalents - beginning of year 343 44 64
Cash and cash equivalents - end of year $ 44 $ 343 $ 44
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
these statements.
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
<PAGE>
BASIS OF PRESENTATION. The financial statements of Pathe Communications
Corporation ("Pathe" or the "Company") have been presented on a separate
company (parent only) basis. Credit Lyonnais Bank Nederland N.V. ("CLBN")
controls the voting rights with respect to approximately 97% of the
Company's common stock. In May 1992, CLBN foreclosed on 59,100,000 shares
constituting 98.5% of the common stock of Metro-Goldwyn-Mayer Inc. ("MGM"),
which constituted substantially all of the Company's assets (See Note 3.).
As a result of the sale of its MGM stock, the Company has no operating
assets or sources of income. The Company is currently dependent on CLBN to
fund its ongoing cash requirements.
CASH EQUIVALENTS. The Company considers all highly liquid debt instruments
with original maturities of three months or less to be cash equivalents.
DEBT ISSUANCE COSTS. Debt issuance costs are capitalized when incurred
and, together with original issue discount, are amortized over the term of
the related debt utilizing the bonds outstanding method.
RECLASSIFICATION. Certain 1993 and 1992 amounts have been reclassified to
conform with the 1994 presentation.
NOTE 2. MARKET FOR THE COMPANY'S COMMON STOCK
Trading in the Company's common stock was suspended by the New York Stock
Exchange (the "Exchange") on July 13, 1992 pending application by the
Exchange to the Securities and Exchange Commission (the "SEC") to delist
the stock. Such action was taken because the Company had fallen below the
Exchange's continued listing criteria related to (i) net tangible assets
available to common stock together with three-year average net income and
(ii) aggregate market value of publicly held common stock. On August 28,
1992, the SEC, in response to the Exchange's application, issued an order
removing the Company's common stock from listing and registration on the
Exchange.
The Company is unable to predict at this time whether any public market
will exist for the Company's remaining outstanding shares of common stock.
The Company does not have any present plans that would result in the
repurchase or redemption of its common stock or in the admission for
trading of such stock on other exchanges or markets.
The Company's stock may be subject to deregistration with the SEC if the
Company has less than 300 stockholders of record, in which event the
Company would no longer file public reports with the SEC.
NOTE 3. EXTRAORDINARY ITEM - LOSS ON FORECLOSURE
On April 16, 1992, CLBN commenced foreclosure proceedings upon 59,100,000
shares of MGM's common stock owned by the Company, representing 98.5% of
the issued and outstanding common stock of MGM. A foreclosure auction to
sell the MGM Shares was held on May 7, 1992 in Wilmington, Delaware. At
such auction, MGM Holdings Corporation, an affiliate of CLBN, bid-in
$483,489,000 of the indebtedness of the Company and certain affiliates and
acquired all of the MGM shares. The Company recorded an extraordinary loss
of $319,732,000 in the year ended December 31, 1992, representing the
difference between the carrying value of its investment in MGM and the
amount of the Company's debt relieved in the foreclosure.
<PAGE>
NOTE 4. BANK AND OTHER DEBT
Bank and other debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
CLBN credit facility . . . . . . . . . . . . . . . . . . . . . . . $ 29,206 $ 23,412
Sealion note payable . . . . . . . . . . . . . . . . . . . . . . . 150,000 150,000
$179,206 $173,412
</TABLE>
CLBN CREDIT FACILITIES. On May 7, 1992, approximately $140,000,000 of
indebtedness, including accrued interest, under two credit facilities the
Company previously had with CLBN was relieved in the foreclosure (See Note
3.). In October 1992, the outstanding balance due to CLBN was converted
into a demand promissory note, with interest accruing quarterly at LIBOR
plus 2%. Any future advances by CLBN will be made under the promissory
note and are at the absolute discretion of CLBN. At December 31, 1994 and
1993, the Company had drawn down $29,206,000 and $23,412,000, respectively,
under this facility. Interest expense related to the credit facilities
with CLBN was $1,820,000, $1,045,000 and $4,130,000 for each of the three
years ended December 31, 1994, 1993 and 1992, respectively, and the
weighted average interest rates (based on the average ending monthly
balances) were 7.10%, 5.21% and 6.05%, respectively.
SEALION NOTE PAYABLE. In November 1990, the Company borrowed $150,000,000
from Sealion Corporation N.V. ("Sealion"), a company affiliated with SASEA
Holding S.A. ("SASEA"), which is affiliated with prior management of the
Company, and lent the proceeds to Melia International N.V. ("Melia"), the
Company's major stockholder. Sealion has assigned, as collateral security,
its receivable from the Company to Credit Lyonnais S.A., the parent of
CLBN. The Company's obligation is guaranteed by Melia and collateralized
by approximately 51% of the Company's outstanding stock. The obligation
bears interest at LIBOR plus 2% payable monthly and, as amended, required
principal reductions of $30,000,000 a month beginning in January 1992.
None of these interest payments or principal reductions have been made by
the Company, and this facility is currently in default. Interest expense
related to this note was $10,644,000, $7,864,000 and $8,657,000 for 1994,
1993 and 1992, respectively, and the weighted average interest rates were
7.10%, 5.21% and 5.77%, respectively.
MATURITY SCHEDULE. All of the foregoing debt is currently payable.
NOTE 5. SUBORDINATED DEBT
Subordinated debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
<PAGE>
December 31,
1994 1993
<S> <C> <C>
12-3/8% senior subordinated notes $ - $16,709
12-7/8% senior subordinated debentures 27,050 26,686
8-7/8% convertible senior subordinated debentures 3,761 3,761
$30,811 $47,156
</TABLE>
12-3/8% NOTES. The 12-3/8% senior subordinated notes (the "Notes") became
due and payable on November 1, 1994. Payment with respect to $2,490,000 in
principal amount of the Notes was made in accordance with the terms
thereof. Since the remaining $14,599,000 face value of the Notes was held
by CLBN, payment of principal with respect thereto was not made and is
included in the financial statements as matured debt payable. The
outstanding principal balance of the Notes at December 31, 1993 included
$380,000 in unamortized original issue discount.
12-7/8% AND 8-7/8% DEBENTURES. The 12-7/8% senior subordinated debentures
(the "12-7/8% Debentures") and 8-7/8% convertible senior subordinated
debentures (the "8-7/8% Debentures") are due on April 15, 2001 and have
been redeemable since April 15, 1989. On April 15, 1989, the Company, upon
the exercise of an option by the 8-7/8% Debenture holders, repurchased
$19,810,000 of the outstanding 8-7/8% Debentures and issued $28,550,000 of
new 12-7/8% senior subordinated debentures, priced to yield the then
current market rate on the existing 12-7/8% Debentures, which were trading
at a substantial discount from face value. This transaction resulted in an
original issue discount on the new 12-7/8% Debentures of $8,740,000. The
new debentures have terms similar to the existing 12-7/8% Debentures. The
unamortized discount was $4,074,000 and $4,438,000 as of December 31, 1994
and 1993, respectively, on the 12-7/8% Debentures.
Annual sinking fund payments at 15% of the aggregate principal amounts of
these debentures are required to commence in April 1996 through April 2000.
CLBN'S HOLDINGS. Pursuant to a tender offer by CLBN in 1992 for all of the
Notes, the 12-7/8% Debentures and the 8-7/8% Debentures at $470, $470 and
$420 per $1,000 principal amount, respectively, CLBN acquired an aggregate
principal amount of $9,379,000 of the subordinated debt. Pursuant to an
agreement with certain bondholders, the Company also acquired in 1992 an
additional $27,013,000 face value of the subordinated debt.
Since October of 1993, payments of principal and interest on the portion of
the subordinated debt held by CLBN have not been made. At December 31,
1994, an aggregate of $7,688,000 in interest and $14,599,000 in principal
otherwise payable to CLBN had not been made and CLBN held an aggregate
$27,891,000 of the subordinated debt outstanding. The Company has not made
any provision for the accrual of interest on the amounts payable to CLBN,
although CLBN might in the future make a claim on the Company for such
interest.
RESTRICTIVE COVENANTS. The subordinated debt indentures contain various
covenants including reporting requirements, dividend and stock purchase
limitations and maintenance of minimum equity.
The indentures also contain cross acceleration provisions which provide
that an event of default occurs if holders of certain other debt of the
<PAGE>
Company, in aggregate principal amount in excess of $1,000,000, accelerate
the maturity of such debt and such acceleration is not rescinded within 60
days. While the Company is in default on many of these covenants, no such
debt has been accelerated. If such event were to occur and certain notices
were given under the various agreements and indentures, a substantial
portion of the Company's subordinated debt could be accelerated. The
Company has not received any such notices.
In connection with the tender offer, CLBN agreed to provide funding to the
Company to enable it to make scheduled interest payments under the
Company's subordinated debenture agreements during the period ended May 5,
1993 on such obligations not owned by CLBN. Subsequent to May 5, 1993,
CLBN has continued to provide the Company with the funds necessary to meet
interest expenses on the Company's subordinated debt not owned by CLBN, but
CLBN has not indicated any intention to fund any of the Company's future
expenses and the Company has no other source of funding.
In conjunction with the tender offer, the indentures governing the 12-7/8%
Debentures and 8-7/8% Debentures (the "Indentures") were amended to provide
that (a) June 30, 1992 replaces December 28, 1985 as the date after which
consolidated net income or loss will be included in the computation of
permitted dividends, distributions or stock repurchases and (b) the minimum
net worth covenant will be clarified to provide that certain debentures
previously acquired by the Company and canceled can be utilized to satisfy
any repayment obligation arising from failure to satisfy such covenant.
Additionally, there were modifications to certain other covenants.
The Company currently does not meet the minimum net worth covenant under
such Indentures as its net worth has been below $37,500,000 for more than
two consecutive quarters. Upon the occurrence of such event, the
Indentures, as amended as described above, require the Company to redeem
10% of the aggregate principal amount of the debentures then outstanding
(at 100% of the principal amount) plus accrued interest by the last day of
any subsequent quarter. As noted above, the Company can satisfy the
redemption requirement through previously acquired and canceled debentures.
Due to the significant amount of such debentures previously acquired by the
Company, the Company will not be required to make any cash redemptions for
the foreseeable future.
NOTE 6. STOCKHOLDERS' EQUITY
COMMON STOCK SUBSCRIPTIONS. On November 1, 1990, the Company entered into
stock subscription agreements with two of its major shareholders, Melia and
Comfinance S.A. ("Comfinance"), providing for the purchase of 57,000,000
shares of the Company's common stock at $10 per share, a total of
$570,000,000. In connection with Melia's funding of its stock
subscription, a purported loan agreement was entered into with Banca
Popolare di Novara. The Company classified the outstanding portion of the
contested obligation as an offset to Common Stock Subscriptions at December
31, 1991. Due to the foreclosure described in Note 3, the potential impact
of this note on the Company ceased, resulting in an increase in the
Company's investment in MGM and a corresponding increase to equity prior to
the recognition of the extraordinary loss due to the foreclosure.
On May 6, 1992, the Company issued 57,000,000 shares of common stock under
the subscriptions to Melia and Comfinance. These shares are subject to
pledge arrangements in favor of CLBN (See Note 1.).
TENDER OFFER. On May 7, 1992, CLBN commenced a tender offer to purchase up
to 5,800,000 of the Company's outstanding unencumbered shares of common
<PAGE>
stock at $1.50 per share. The tender offer did not include 110,756,450
shares of the Company registered in the name of CLBN, as voting trustees
under certain voting trust agreements, or otherwise subject to pledge
agreements in favor of CLBN. CLBN acquired 2,809,739 shares under the
tender offer, which expired on June 5, 1992.
LOSS PER COMMON SHARE. Per share data is based on 116,746,810 weighted
average shares outstanding for 1994, 1993 and 1992.
NOTE 7. DOMESTIC AND FOREIGN TAXES
Due to its limited activities, the Company has incurred no currently
payable income tax liabilities.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," during the year ended December 31, 1993.
This statement requires the use of the liability method of accounting for
deferred income taxes. The implementation did not have a material impact
as all deferred tax assets were offset against valuation allowances as a
result of loss carryforwards which are not expected to be realized.
For income tax reporting purposes, the Company has available approximately
$72,920,000 in Federal net operating loss carryforwards on a parent-only
reporting basis. Additionally, the Company has available approximately
$429,445,000 in capital loss carryforwards.
The Company has incurred miscellaneous state franchise and other local
license fees, all of which have been treated as general and administrative
costs rather than as income tax expenses.
NOTE 8. RELATED PARTY TRANSACTIONS
CLBN has provided the Company with a credit facility and holds as
collateral security the Sealion note payable (See Note 4.). Interest in
the aggregate amount of approximately $10,750,000 and $8,909,000 was
charged on these two borrowings during 1994 and 1993, respectively. The
Company also paid to CLBN approximately $502,000 in 1992 related to letters
of credit and other fees, pursuant to the terms of its credit facilities.
No such fees were charged by CLBN to the Company during 1994 or 1993.
In addition, CLBN is the holder of various subordinated debentures issued
by the Company. As the Company has no operating assets or significant
sources of income, CLBN has agreed to forego its receipt of interest on the
debentures it holds (See Note 5.).
NOTE 9. COMMITMENTS AND CONTINGENCIES
LITIGATION. The Company is subject to a consent decree (the "Consent
Decree") entered in the United States District Court for the Central
District of California in a Securities and Exchange Commission civil action
commenced against the Company on November 19, 1987, entitled Securities and
Exchange Commission v. The Cannon Group. Inc. et al., Case No. 87-07590.
This proceeding against the Company and certain of its former directors and
officers alleged, among other things, violations or aiding and abetting of
violations of the antifraud, reporting, proxy, record keeping and internal
controls provisions of the federal securities laws. Without admitting or
<PAGE>
denying the allegations in the Commission's complaint, the Company and
certain individuals settled the action and consented to the entry of a
final judgment enjoining them from violating the aforementioned provisions
of the federal securities laws.
The Consent Decree required the Company to appoint an independent person to
examine transactions between the Company and related parties for the period
January 1, 1984 through December 31, 1986. The independent person is
required to deliver a report to the Company's Board of Directors regarding
such transactions together with recommendations regarding what action the
Board should take as a result of the examination. The Company appointed a
law firm as the independent person. In November 1991, the independent
person resigned without having delivered a report to the Board of
Directors. In its resignation letter, the independent person stated it had
been unable to complete their examination because of the Company's failure
to pay the independent person's fees and because certain members of the
former management of the Company had failed to cooperate in the
examination.
Current management also believes that the Company under prior management
may have violated other provisions of the Consent Decree. Violations of
the Consent Decree could result in further proceedings by the Commission.
If the Company were found to have violated the Consent Decree, the Company
could be held in contempt of court and could be subjected to substantial
penalties. The Company has informed the Commission of its concerns
regarding compliance with the Consent Decree and is cooperating with the
Commission in its review of this matter. While no assurances can be given,
management believes that any punitive measures which may be imposed as a
result of violations of the Consent Decree would be imposed upon those
persons responsible for such violations (as opposed to the Company's
current management) and would not have a material adverse effect upon the
Company.
The Commission is currently conducting an investigation into certain
transactions effected by prior management of the Company. The Company is
cooperating fully with the Commission in its investigation. The Company
cannot presently determine what, if any, action the Commission might take
as a result of its investigation. Finally, the Consent Decree imposed upon
the Company certain current disclosure requirements, including an updated
report of transactions with Video Medien Pool Productions and Vertriebs
GmbH. The Company's current management has no knowledge of these
transactions and, to the extent that current reporting is still required,
the Company may be in default of its obligations under the Consent Decree.
This matter has also been discussed with the Commission staff.
On January 22, 1991, Century West Financial Corporation ("Century West")
filed a complaint in Los Angeles Superior Court against the Company, Renta
Properties, Inc. and others for breach of contract, breach of third party
beneficiary contract, bad faith denial of contract, breach of the implied
covenant of good faith and fair dealing, and tortious interference with
prospective economic advantage. Century West alleges that it acted as
broker for the sale of 6420 Wilshire Boulevard and is owed a commission.
Century West seeks compensatory damages in the amount of $470,000, interest
thereon and punitive damages. A Third Amended Complaint was filed in this
action on January 14, 1994. A cross-complaint has been filed against the
Company seeking damages in excess of $1,000,000 plus unspecified punitive
damages. The Company has filed a demurrer to the cross-complaint, and the
Company itself has filed a cross-claim. In addition, the Company has been
advancing defense costs to a former employee and will indemnify him subject
to an undertaking for reimbursement under certain circumstances. No trial
date is currently set. The Company intends vigorously to defend this
action.
<PAGE>
On June 18, 1991, a complaint was filed in the United States District Court
for the Central District of California against the Company, MGM, Messrs.
Parretti, Fiorini, Globus and Aurelio Germes and Maria Cecconi (Mr.
Parretti's wife) on behalf of a purported class which acquired MGM's 13%
Subordinated Debentures due 1996. On October 10, 1991, J. Phillip
Williams, on behalf of a group of MGM bondholders, filed a complaint in the
United States District Court for the Central District of California against
the Company, MGM, CLBN and Mr. Parretti which alleges that the defendants
violated U.S. securities laws, and conspired to deceive plaintiffs about
MGM's financial condition, markets, and business prospects, thereby
artificially inflating the price of MGM's securities. The complaint seeks
unspecified damages. The Company answered the complaint on November 5,
1991. Limited discovery was conducted regarding class certification. On
March 23, 1992, the court heard and denied Williams' motion for class
certification. On May 18, 1992, the court denied Williams' motion for
reconsideration. On July 22, 1992, another bondholder, Herbert Eisen,
moved to intervene in the lawsuit. After limited discovery was conducted
regarding intervention, the court granted Mr. Eisen's motion to intervene.
On December 15, 1992, Mr. Eisen filed a complaint-in-intervention that
mirrors the allegations in the Williams' complaint. The Company and MGM
answered Eisen's complaint-in-intervention on December 29, 1992. On
October 26, 1993, the parties entered into a Stipulation of Settlement
which would dispose of this matter subject to Court approval. The
settlement, if approved, would create a fund of $4,500,000 against which
injured class members may make a claim. Any unclaimed portion of the fund
will be returned to the contributing defendants. The Company has accrued
$2,250,000 to fund the settlement.
On September 25, 1991, Century Insurance Ltd. ("Century") filed a complaint
in Superior Court against the Company, MGM, Melia, Comfinance S.A.
("Comfinance"), CLBN and Mr. Parretti alleging, among other things, breach
of contract, fraud, constructive fraud, conversion and conspiracy. The
claims arise out of certain defendants' failure to pay a purported $1.75
million premium in connection with plaintiff's purported issuance of a
completion guarantee bond in connection with the financing of the
acquisition of MGM by the Company in 1990 and alleged unpaid premiums in
connection therewith. The plaintiff seeks $34,200,000 in alleged management
fees on three purported insurance investment bonds and declaratory relief.
MGM was voluntarily dismissed from the action on January 3, 1992. The
plaintiff served a second amended complaint on February 3, 1992. In
addition, on December 6, 1991, this case was consolidated with an earlier
declaratory relief suit filed by CLBN against Century. The Company was not
a party to this earlier suit. On February 3, 1993, the court dismissed
with prejudice Century's complaint against the Company and all of the other
defendants, for failure to comply with discovery orders. On July 14, 1993,
Century moved to vacate the judgment in the Company's and other defendants'
favor, which motion was denied. Century has filed a notice of appeal of
denial of its motion to vacate. The parties have not completed the appeal
briefing and no date has been set for the hearing of the appeal. The
Company intends vigorously to defend this action.
On January 18, 1991, Andrea Kune, a stockholder of the Company, filed a
derivative lawsuit on behalf of the Company against Messrs. Parretti,
Fiorini, Globus, Valentina Parretti, Ms. Cecconi, Antonio Pares-Neira and
Lewis P. Horwitz, alleging breach of fiduciary duty, abuse of control,
waste of corporate assets, fraud and deceit, negligent misrepresentation
and constructive fraud. Certain other individuals formerly associated with
the Company were subsequently named as defendants. The Company was named
as a nominal defendant only. On September 16, 1991, the Company filed a
Statement of Non-Response asserting that it had no obligation to respond to
the complaint because the complaint seeks no relief from the Company. A
second amended complaint was filed on July 27, 1992 against the same
defendants in which the Company was again named as a nominal defendant.
<PAGE>
Kune alleges claims for breach of fiduciary duty, fraud and deceit,
negligent misrepresentation and constructive fraud against the defendants.
The amended complaint seeks unspecified damages. The Company remained a
nominal defendant only and no claims for monetary relief are asserted
against it. On September 27, 1994, the parties and the Company's former
directors and officers liability insurer signed a formal agreement to
settle the case for $4,000,000, less plaintiff's attorneys' fees, costs and
expenses to be awarded, subject to Court review and approval. The Court
approved the settlement at a final hearing on November 28, 1994, dismissed
the complaint with prejudice and entered judgment. In February, 1995, the
Company received $2,529,537 from the settlement.
On January 27, 1992, Linda Carter filed an application for award for
employer violation of Section 132(a) of the Labor Code before the Workers'
Compensation Appeals Board of the State of California against the Company
and MGM seeking reinstatement of employment, back wages at approximately
$21,000 per year plus benefits, and costs of suit. The application alleges
Ms. Carter was laid off on March 4, 1991, in retaliation for filing a
workers' compensation claim. The Company is vigorously defending this
action.
On January 21, 1992, CLBN filed an action in the Delaware Chancery Court in
which CLBN asserted various claims against the Company, Gestione Nuove
Attivita Finanziarie S.a.r.l. (a company controlled by Ms. Cecconi)
("GENAF"), Melia and certain subsidiaries of Melia seeking, among other
things, a judicial declaration that: (i) a purported transfer of common
stock of the Company from Melia and certain of its subsidiaries to GENAF
(the "Subject Stock") is null, void and without effect; and (ii) the
Company should issue new stock certificates to CLBN representing the
Subject Stock or impose a constructive trust on the Subject Stock held by
GENAF. On February 4, 1992, the Delaware Chancery Court issued an order
sequestering the Subject Stock. The Company, Melia and its subsidiaries
have answered the complaint. In addition, Melia has filed a third-party
complaint seeking damages and injunctive and declaratory relief against
GENAF, Mr. Parretti and Ms. Cecconi alleging, among other things, fraud and
conversion. On or about February 6, 1992, Mr. Parretti and GENAF applied
to the Civil Court in Rome for the appointment of a custodian of issued
shares in the Company and MGM purportedly held by Mr. Parretti and GENAF
and for precautionary measures to protect the assets of the Company and MGM
against further alleged diminution in value being caused by CLBN. The
Court on or about February 24 and March 6, 1992 issued temporary ex parte
orders decreeing that the shares of the Company and MGM are validly within
the custody of the Court, and appointing Paolo Picozza as custodian of the
shares in dispute. On March 12, 1992, CLBN filed a special appearance with
the Court objecting to the decrees on the ground, among other things, that
the stock certificates presented to the Court as evidence of Mr. Parretti's
controlling interest in the Company and MGM were either already sequestered
by the Delaware Chancery Court on February 12, 1992, pursuant to an order
of that court dated February 4, 1992 or previously certified lost and
replaced, as well as on various procedural and jurisdictional grounds. On
June 10, 1993, the Italian Supreme Court ruled in a decision that was
released to the parties in January 1994 that the courts of Italy lacked
jurisdiction over this matter and granted an award for the costs of CLBN
against the plaintiffs. This decision is final and not subject to appeal.
On May 6, 1992, Robert Solomon filed a complaint in Delaware Chancery Court
against the Company, CLBN, Dennis Stanfill, Alan Ladd, Jr., Charles Meeker,
Kenneth Meyer, Jay Kanter, William Jones, Thomas Carson, Rene Claude
Jouannet, Bahman Naraghi, Guy Etienne Dufour, G. Goirand and Jacques
Bertholier for breach of defendants' duties of fair dealing and breach of
fiduciary duties to the public stockholders of the Company in connection
with the Foreclosure and CLBN's Tender Offer for the Company's stock at a
price of $1.50 per share. Plaintiff filed the action on his own behalf and
<PAGE>
as a class action on behalf of a purported class of public stockholders of
the Company. On March 15, 1994, Solomon filed an amended class action
complaint against the Company, CLBN and certain of the previously named
individuals. Defendants have moved to dismiss the complaint, and no
decision has yet been rendered. The Company plans vigorously to defend the
action.
On April 16, 1993, the Company filed a bankruptcy petition against Melia
with the Bankruptcy Chamber of the Amsterdam District Court. This petition
was joined by the Dutch tax authorities, Scotti International N.V., Cannon
Cinema B.V. and CLBN. At a hearing on April 27, 1993, the Court found that
Melia had ceased to pay its debts and declared Melia officially bankrupt.
The Court appointed Mr. R.W. De Ruuk as official receiver in the
bankruptcy. The appeal period under the governing Dutch Bankruptcy Code
has lapsed. Mr. De Ruuk has deposited three public reports with the Dutch
authorities. It appears to the Company from such reports that no material
recovery benefitting it will be forthcoming.
On June 29, 1993, Aurelio Germes, a former officer of the Company, filed a
declaratory relief action against the Company in the United States District
Court for the Central District of California. Mr. Germes seeks a
declaratory judgment that the Company is obligated to pay Mr. Germes' legal
fees in connection with the SEC investigation and in defense of the Kune
matter. The Company filed an answer to this complaint on August 12, 1993.
Subsequently, upon motion by the Company, the Court determined that the
claims relating to the SEC investigation were not ripe, but that those
relating to the Kune case were. In light of the settlement of the Kune
case described above, plaintiff's claims became moot and the parties have
agreed to a voluntary dismissal of the case. The dismissal was entered by
the Court March 10, 1995.
On March 30, 1994, Giancarlo Parretti, Valentina Parretti, Maria Cecconi
and Comfinance, S.A. filed suit in Los Angeles Superior Court against the
Company and numerous other defendants, including CLBN, CLBN's parent
company Credit Lyonnais S.A., MGM and former officers and directors of the
Company and of MGM. Plaintiffs' complaint arises from alleged acts in
connection with the Company's merger with MGM in November 1990 and
subsequent events by which plaintiffs lost ownership and control of MGM and
the Company. Plaintiffs assert causes of action for violation of the
Racketeer Influenced and Corrupt Organizations Act, fraud, conspiracy to
defraud, rescission, injunctive relief, spoliation of evidence, malicious
prosecution, breach of employment contract, intentional interference with
contract, intentional interference with prospective economic advantage and
indemnification. Plaintiffs also purport to bring derivative claims on
PCC's behalf for breach of fiduciary duty, constructive fraud and waste of
corporate assets. The Company believes that plaintiffs' claims are largely
barred because they were previously adjudicated in a Delaware court, but
the trial court denied defendants' motion for summary judgment. The
Company is in the process of seeking appellate review of this issue.
Discovery has begun. The Company intends to defend this lawsuit
vigorously.
On June 24, 1994, Ovidio Assonitis, a former employee of Cannon Pictures,
Inc., together with a related corporation, filed a complaint against Cannon
and the Company arising out of the termination of his employment by Cannon
and challenging a settlement agreement he entered into. The Company was
not served with the complaint until November, 1994, and an answer was filed
on December 8, 1994, in which the Company has denied plaintiffs'
allegations. No trial date has been set. The Company intends to defend
this lawsuit vigorously.
The Company has been named a third party defendant in an action brought by
CLBN in the United States District Court for the Central District of
<PAGE>
California against Tracinda Corporation, Kirk Kerkorian, Jeffrey Barbakow
and Stephen Silbert. Those parties claim that if they are held liable to
CLBN in the principal suit, the Company is obligated to indemnify them for
their damages and the attorneys' fees expended in defending thenselves. A
trial date for the underlying action had been set for early in 1995, but
the trial judge vacated it pending resolution of a discovery matter. The
Company intends to defend this claim vigorously.
The Company understands that there is other pending litigation involving
claims by, against and among CLBN and MGM, on the one hand, and Tracinda
Corporation, Houlihan Lokey Howard & Zukin, Kirk Kerkorian, and other
related entities and individuals, on the other hand. The Company has been
a party to certain of these actions in the past, and in May, 1994, the
Company and Houlihan Lokey entered into a settlement agreement pursuant to
which all claims asserted by Houlihan Lokey against the Company were
dismissed with prejudice.
Demands for the advancement of legal fees and indemnification in the
defense of the Kune and Williams actions have been made by Giancarlo
Parretti, Maria Cecconi, and Valentina Parretti (collectively, the
"Parrettis"). In addition, a demand for the advancement of legal fees for
defense of the Kune case has been made by Yoram Globus. The Company has
rejected these demands. In addition, there have been other claims for
indemnification and/or the advancement of expenses and legal fees which
have been asserted from time to time by former officers, directors and/or
employees of the Company, and the Company reviews each demand on a case by
case basis.
NOTE 10. SUPPLEMENTARY CASH FLOW INFORMATION
Total interest paid was $1,454,000, $3,770,000 and $6,481,000 for fiscal
years ended December 31, 1994, 1993 and 1992, respectively.
On May 7, 1992, approximately $140,000,000 of indebtedness was relieved in
the foreclosure (See Note 3.).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Fredric S. Newman, age 49, has been the sole director and sole
executive officer of the Company since May 6, 1993, when he was elected
President, Secretary and Treasurer of the Company. He has been a
practicing attorney in New York City for more than the past five years. In
1991 he was the Chief Executive Officer of World Team Tennis, Inc. and
prior thereto he was Vice President and General Counsel of Philip Morris
Incorporated.
Pursuant to an agreement dated as of May 1, 1993 between the Company
and Mr. Newman, Mr. Newman is to serve as President, Secretary and
Treasurer of the Company with all of the power and authority to direct and
<PAGE>
manage the affairs of the Company. The agreement calls for an annual
compensation at the rate of $75,000 plus certain additional compensation
determined on an hourly basis dependent upon the services performed. The
term of the agreement is one year, renewable annually, and the Company may
terminate the agreement at any time upon payment of the agreed
compensation.
ITEM 11. EXECUTIVE COMPENSATION
Except pursuant to the agreement referred to in Item 10, no
compensation was awarded to, earned by or paid to Mr. Newman or any other
executive officer or director of the Company for the 1994 fiscal year and
no compensation was awarded to, earned by or paid to any person serving as
Chief Executive Officer during 1994 for the 1992 or 1993 fiscal years. Mr.
Newman earned $117,203 for his services to the Company during 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 10, 1995, certain
information concerning ownership of shares of common stock (the only class
of the Company's voting securities outstanding) by (i) each person who is
known by the Company to own beneficially more than five percent of its
issued and outstanding common stock, (ii) each current director of the
Company and (iii) all current officers and directors of the Company as a
group. This information is based on information provided to the Company by
or on behalf of the stockholder or on information on file with the
Securities and Exchange Commission. The Company has made no effort to
review other public information regarding stockholders or otherwise to
confirm beneficial ownership of stockholders.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name and address of Beneficial Owner Beneficial Ownership <F1> of Class
<S> <C> <C>
Credit Lyonnais Bank Nederland N.V. 113,146,884<F2><F4> 96.9%
63 Coolsingel
3012 AB Rotterdam
The Netherlands
Giancarlo Parretti 110,672,150<F2><F3><F4> 94.8%
Via XX Septembre 3
00187 Rome
Italy
Maria Cecconi 110,672,150<F2><F3><F4> 94.8%
22/24/ Boulevard Royal
2449 Luxembourg
Comfinance S.A. ("Comfinance") 110,672,150<F2><F3><F4> 94.8%
22/24/ Boulevard Royal
2449 Luxembourg
Interpart S.A. ("Interpart") 102,672,150<F2><F3><F4> 87.9%
22/24/ Boulevard Royal
<PAGE>
2449 Luxembourg
Melia International N.V. ("Melia") 102,672,150<F2><F3><F4> 87.9%
Nisuwezijds Voorburgwai 120-126
1012 SH Amsterdam
The Netherlands
SASEA Holding S.A.("SASEA") 102,672,150<F2><F3><F4> 87.9%
29, rue de Candolla
DH-1205 Geneva
Switzerland
Renta Inmobiliaria International B.V. 22,363,724<F2><F4> 19.2%
("Renta B.V.")
Nieuwezijds Voorburgwai120-126
1012 SH Amsterdam
The Netherlands
Renta Corp. ("Renta Corp.") 5,812,000<F2><F4> 5.0%
6420 Wilshire Blvd.
Los Angeles, CA 90048
Fredric S. Newman 0 0%
10 East 40th Street
New York, New York 10016
All current officers and directors as a group 0 0%
(1 person)
<FN>
<F1> Based on 116,746,810 shares of common stock issued and outstanding. Except as indicated below, each of the persons or
entities listed above has sole voting and investment power with respect to all shares shown for such person or entity.
<F2> CLBN owns 2,798,424 shares of common stock and exercises voting power pursuant to certain voting trusts and pledge
agreements with respect to 110,348,460 shares held by Melia, Comfinance, Renta B.V and Renta Corp.
<F3> Mr. Parretti and his wife, Mrs. Cecconi, are the majority owners of Comfinance (Mr. Parretti holds 14% and Mrs. Cecconi
holds 57%.). According to Mr. Parretti, he and Mrs. Cecconi hold their respective shares under a separate property
agreement governed by the laws of Italy. They do not share any voting or dispositive power over their respective shares
in Comfinance. Interpart is beneficially owned by Mr. Parretti and certain of his affiliates and is currently in
voluntary liquidation with its management being conducted by a liquidator. The shares indicated as being beneficially
owned by Comfinance and Interpart include approximately 80,000,000 shares held by Melia, 16,551,724 shares held by Renta
B.V., 5,812,000 shares held by Renta Corp. and 407,990 shares held by Viajes Melia ("Viajes").
Comfinance and Interpart together own 48.7% of the outstanding ordinary and preferred stock of Melia (Comfinance holds
24.4% and Interpart holds 24.3.%.). SASEA and certain of its affiliates own 50.3% of the outstanding ordinary and
preferred stock of Melia (SASEA directly holds 20%.). There is currently a dispute in a Swiss court between SASEA and
Interpart regarding the ownership of 2.4% of the shares of Melia currently held by SASEA. The outcome of this action will
determine the control of Melia. Florio Fiorini, formerly a director of the Company, was previously a member of the
Executive Committee of SASEA, and is purportedly the owner of a significant minority interest in the outstanding stock of
SASEA. In October 1992, SASEA was declared bankrupt under Swiss law. The competent court in Geneva, Switzerland
appointed special administrators to liquidate SASEA's assets. Management control of Melia is vested in its Board of
Managing Directors, which currently consists solely of members appointed by SASEA. A foundation controlled by Mr.
Parretti, Mr. Fiorini and Mr. Parretti's daughter, Valentina Parretti, exercises rights with respect to Melia including
the approval of certain actions of the Board of Managing Directors and certain rights with respect to the appointment of
the Board of Managing Directors. Melia is the controlling stockholder of Viajes through Corporacion Viajes Melia S.A.
Melia is the sole stockholder of Renta B.V. which in turn is the sole stockholder of Renta Corp.
<F4> Includes the 16,551,724 shares owned by Renta B.V. and the 5,812,000 shares owned by Renta Corp. The Company is reviewing
the facts and circumstances surrounding the issuance of the 16,551,724 shares owned by Renta B.V. to determine whether
such shares were validly issued, including the issue of whether sufficient consideration was received by the Company for
the issuance of such shares.
</TABLE>
<PAGE>
ITEM 13. CERTAIN RELATIONS AND RELATED TRANSACTIONS.
Information concerning the credit facility provided to the Company by
CLBN set forth in Note 4 of the Notes to the Financial Statements beginning
on page 13.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2) Financial Statements and Schedules
The financial statements listed in the accompanying Index to
Financial Statements at Page 7 herein are filed as part of this Form
10-K.
(a)(3) Exhibits:
The exhibits listed in the accompanying Exhibit Index are filed
as part of this report.
(b) Reports on Form 8-K:
During the three months ended December 31, 1994, no reports on
Form 8-K were filed by the Company.
(c) Other Exhibits: Exhibit 11 is attached hereto
(d) Other Financial Statement Schedules: None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PATHE COMMUNICATIONS CORPORATION
by /s/ Fredric S. Newman
Fredric S. Newman
President
Dated: March 10, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report had been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ Fredric S. Newman Director, President, Secretary and March 10, 1995
<PAGE>
Fredric S. Newman Treasurer (Principal Executive,
Financial and Accounting Officer)
</TABLE>
INDEX TO EXHIBITS
Exhibit
Number Description
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended January
3, 1987).
3.2 Amendment dated March 17, 1989 to the Restated Certificate
of Incorporation of the Company (incorporated by reference
to Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 30, 1989).
3.3 By-Laws of the Company as amended through May 6, 1993
(incorporated by reference to Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1993).
3.4 Amendment dated November 8, 1989 to the Restated Certificate
of Incorporation of the Company (incorporated by reference
to Exhibit 3.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 30, 1989).
3.5 Resolutions Adopted by the Board of Directors of Pathe
Communications Corporation on April 16, 1991 (incorporated
by reference to Exhibit 3.5 to the Company's Form 10-K for
the year ended December 29, 1990).
3.6 Resolutions adopted by the Board of Directors of MGM-Pathe
Communications Co. on April 16, 1991 (incorporated by
reference to Exhibit 3 (3) to MGM-Pathe Communications Co.
Form 8-K dated May 3, 1991).
4.1 Indenture, dated as of November 1, 1984, between the Company
and Bankers Trust Company, as Trustee, in regard to
$70,000,000 12-3/8% Senior Subordinated Notes due 1994
(incorporated by reference to Exhibit 4.1 to the Company's
Form S-1 Registration Statement No. 2-93526 filed September
28, 1984).
4.2 Indenture, dated as of April 15, 1986, between the Company
and Manufacturers Hanover Trust Company of California, as
Trustee, in regard to $80,500,000 8-7/8% Convertible Senior
Subordinated Debentures due 2001 (incorporated by reference
to Exhibit 4.1 to the Company's Form S-1 Registration
Statement No. 33-3334 filed February 14, 1986).
4.3 Indenture, dated as of April 15, 1986, between the Company
and Manufacturers Hanover Trust Company of California, as
Trustee, in regard to $26,500,000 12-7/8% Senior Sub-
ordinated Debentures due 2001 (incorporated by reference to
Exhibit 4.1 to the Company's Form S-1 Registration Statement
No. 33-3333 filed February 14, 1986).
<PAGE>
4.4 Warrant Agreement, dated as of October 15, 1987 between the
Company and Warner Communications, Inc. (Incorporated by
reference to Exhibit 1 to the Company's Report on Form 8-K
filed on October 21, 1987).
9.1 Voting Trust Agreement by and between the Company and Credit
Lyonnais Bank Nederland N.V. dated April 15, 1991
(incorporated by reference to Exhibit 10(9) to MGM-Pathe
Communications Co. Form 8-K dated May 3, 1991).
9.2 Voting Trust Agreement by and between the Company and Credit
Lyonnais Bank Nederland N.V. dated April 15, 1991
(incorporated by reference to Exhibit 10(10) to MGM-Pathe
Communications Co. Form 8-K dated May 3, 1991).
10.1 Agreement, dated as of May 18, 1989, between the Company,
Renta Inmobiliaria, Renta International B.V. and Renta Corp.
(incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the year ended December 30,
1989).
10.2 Agreements between certain G&G Interests and the Company,
dated as of July 1, 1983 (incorporated by reference to
Exhibit A to the Company's Form S-1 Registration Statement
No. 2-86297 filed August 30, 1983).
10.3 Agreement dated as of May 1, 1993 by and between the Company
and Fredric S. Newman (incorporated by reference to Exhibit
10.3 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993).
10.4 Loan out Agreement, dated March 1, 1989, between Pathe
Entertainment, Inc. and Kanter Corp. for the services of Jay
Kanter (incorporated by reference to Exhibit 10.49 to the
Company's Annual Report on Form 10-K for the year ended
December 30, 1989).
10.5 Property and Share Sale Agreement, dated December 29, 1989
by and among Cannon SE Cinema Properties Limited, Cannon
Cinemas Limited, Pathe Group (U.K.) Limited and Cinema 5
Europe N.V. (incorporated by reference to Exhibit 10.52 to
the Company's Form 10-K for the year ended December 30,
1989).
10.6 Heads of Agreement, dated December 29, 1989, among Cannon
Tuschinski Theaters B.V., Cannon Tuschinski Beheer B.V.,
Cannon Cinema B.V., Holland Exhibitors B.V., Theaterbedrijf
Cinerama Exhibitors Nederland B.V., Nationale Bioscoop
Ondernemingen B.V., Cinerama Amsterdam B.V., Cannon Theaters
(Nederlands) N.V. and Exploitatiemaatschappij "Midden-
Hofstad" B.V. (incorporated by reference to Exhibit 10.53 to
the Company's Annual Report on Form 10-K for the year ended
December 30, 1989).
10.7 Agreement and Plan of Merger, dated as of June 28, 1990, by
and between the Company, MGM/UA Communications Co., and
Tracinda Corporation (incorporated by reference to Appendix
A to MGM/UA Communications Co. Proxy Statement dated August
31, 1990).
10.8 Stock Purchase Agreement, dated as of October 26, 1990,
between the Company and MGM-Pathe Communications Co.
(incorporated by reference to Exhibit B to MGM-Pathe
<PAGE>
Communications Co. Form 8-K dated November 14, 1990).
10.9 Agreement, dated March 26, 1990, among Cineplex Odeon,
Cannon Cinemas Limited and Cannon SE Cinema Properties
Limited (incorporated by reference to Exhibit 10.14 to the
Company's Form 10-K for the year ended December 29, 1990).
10.10 Agreement, dated November 6, 1990, between the Company and
Fin Soft Holding S.A. (incorporated by reference to Exhibit
10.15 to the Company's Form 10-K for the year ended December
29, 1990).
10.11 Subscription Agreement, dated November 1, 1990, between the
Company and Melia International N.V. (incorporated by
reference to Exhibit 10.16 to the Company's Form 10-K for
the year ended December 29, 1990).
10.12 Subscription Agreement, dated November 1, 1990, between the
Company and Comfinance S.A. (incorporated by reference to
Exhibit 10.17 to the Company's Form 10-K for the year ended
December 29, 1990)
10.13 Promissory Note, dated November 15, 1990, from Transmarine
Holdings S.A. payable to the Company (incorporated by
reference to Exhibit 10.18 to the Company's Form 10-K for
the year ended December 29, 1990).
10.14 Comfinance Promissory Note dated November 18, 1990
(incorporated by reference to Exhibit 10.19 to the Company's
Form 10-K for the year ended December 29, 1990).
10.15 Interim Revolving Credit Facility Agreement and Security
Assignment, dated March 22, 1991, by and among MGM-Pathe
Communications Co. and certain affiliates and Credit
Lyonnais Bank Nederland N.V.(incorporated by reference to
Exhibit 10.20 to the Company's Form 10-K for the year ended
December 29, 1990).
10.16 Letter Agreement among Credit Lyonnais Bank Nederland N.V.,
Pathe Communications Corporation, MGM-Pathe Communications
Co. and Melia International N.V., dated April 12, 1991
(incorporated by reference to Exhibit 10(5) to MGM-Pathe
Communications Co. Form 8-K dated May 3, 1991).
10.17 Memorandum of Facility Agreement among MGM-Pathe
Communications Co. and its U.S. subsidiaries and Credit
Lyonnais Bank Nederland N.V., dated April 12, 1991
(incorporated by reference to Exhibit 10(6) to MGM-Pathe
Communications Co. Form 8-K dated May 3, 1991).
10.18 Stock Sale Agreement among Melia International N.V., the
Company and CLINVEST, dated April 13, 1991 (incorporated by
reference to Exhibit 10(7) to MGM-Pathe Communications Co.
Form 8-K dated May 3, 1991).
10.19 Mandat Exclusif de Vente de Titres among the Company, Melia
International N.V. and Credit Lyonnais Bank Nederland N.V.,
dated as of May 10, 1991.
10.20 Assignment, Assumption and Release Agreement among Pathe
Communications Corporation, Melia International N.V. and
Credit Lyonnais Bank Nederland N.V., dated as of April 15,
1991 (incorporated by reference to Exhibit 10(8) to MGM--
<PAGE>
Pathe Communications Co. Form 8-K dated May 3, 1991).
10.21 Agreement regarding Certain Corporate Governance Matters for
MGM-Pathe Communications Co. dated April 15, 1991 among
Giancarlo Parretti, the Company and MGM-Pathe Communications
Co. (incorporated by reference to Exhibit 10(11) to MGM-
Pathe Communications Co. Form 8-K dated May 3, 1991).
10.22 Agreement regarding Certain Corporate Governance Matters for
Pathe Communications Corporation, among Giancarlo Parretti,
the Company and the Company's majority stockholders
(incorporated by reference to Exhibit 10(12) to MGM-Pathe
Communications Co. Form 8-K dated May 3, 1991).
10.23 Amended and Restated Credit Agreement between MGM-Pathe
Communications Co. and Credit Lyonnais Bank Nederland N.V.
dated as of May 15, 1991 (incorporated by reference to
Exhibit 10.31 to the Company's Form 10-K for the year ended
December 29, 1990).
10.24 Schedule 14D-1 Tender Offer Statement and Amendment No. 9 to
Schedule 13D of Pathe Communications Corporation filed with
the Securities and Exchange Commission by Credit Lyonnais
Bank Nederland N.V. on May 8, 1992 (incorporated by
reference).
10.25 Schedule 13E-3 Transaction Statement of Pathe Communications
Corporation filed with the Securities and Exchange
Commission by Credit Lyonnais Bank Nederland N.V. on May 7,
1992 (incorporated by reference).
11. Computation of Earnings (Loss) Per Common Share.
Exhibit 11
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
COMPUTATIONS OF LOSS PER COMMON SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal years ended December 31,
1992 1991 1990
<S> <C> <C> <C>
Loss before extraordinary items . . . . . . . . . . . . . . $ (16,635) $ (26,163) $ (153,106)
Extraordinary items . . . . . . . . . . . . . . . . . . . . - - (319,732)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (16,635) $ (26,163) $ (472,838)
<PAGE>
Weighted average common shares outstanding . . . . . . . . 116,746,810 116,746,810 116,746,810
Primary loss per share before extraordinary items . . . . . $ (.14) $ (.22) $ (1.31)
Primary loss per share extraordinary items . . . . . . . . - - (2.74)
Primary loss per common share . . . . . . . . . . . . . . . $ (.14) $ (.22) $ (4.05)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Financial Statements of Pathe Communications Corporation at December 31,
1994
and for the periods then ended and is qualified in its entirety by
reference to
such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 44
<SECURITIES> 0
<RECEIVABLES> 2,556
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,600
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,181
<CURRENT-LIABILITIES> 256,711
<BONDS> 30,811
<COMMON> 1,167
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,181
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,416
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,474
<INCOME-PRETAX> (16,635)
<PAGE>
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,635)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
